April 27, 2010

Must see TV: William Black on Wall Street and Obama

William Black (from UMKC, who I saw present at the American Monetary Institute conference in Chicago last September) lays out what Wall Street has been up to and what Obama has not been doing about it.

The only problem I see with this is that it furthers the conventional wisdom accepted by almost everyone that it was Wall Street's repackaging of liar loans that caused the crash. On the contrary, I believe the crash would have occurred sooner if no liar loans had ever been granted. This because banks would simply have stopped lending years ago when they ran out of creditable borrowers, and the crash would have happened then, albeit with maybe a smaller downturn.

Instead, banks just kept making loans, to people who they knew would never pay them back, because they knew they could sell off the loans to greater fools, as facilitated by Wall Street.

So I believe liar loans did not cause the crash, they simply delayed it, and maybe amplified it.

All because the underlying money and banking system is inherently unsustainable, for the reason that it requires that debt as a percentage of GDP keep increasing forever, and this is impossible. Once total debt, public and private, hits a ceiling beyond which it cannot go, the result is inevitable: a crash just like we are experiencing.

We have hit the ceiling: $50 trillion of combined public and private debt, over $150,000 per capita, $600,000 per family of four, whose interest payment at 5% is $30,000 per year. Isn't this a limit above which debt simply cannot go? Why is this never discussed, even on Bill Moyers' program?